Before Pandora conquered streaming radio, it was the algorithm powering in-store music kiosks. Here’s how Savage Beast Technologies outlived the record store.

Savage Beast Technologies launched its music kiosk software business in 2000–at exactly the wrong time. The brick and mortar music industry was collapsing. Tower Records, the first to offer Savage Beast’s service, closed the last of its U.S. stores in 2006. Virgin Megastores shuttered in 2009. Other major retailers that sold CDs, including Circuit City and Borders Books, followed suit.

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“Unfortunately, that was a dying business,” said Joe Kennedy, CEO of Savage Beast successor Pandora. “The company hit hard times very very early in the process.”

But two of its founders still believed in its underlying product, technology that could analyze music “in great detail.” And when Larry Marcus of Walden Venture Capital recapitalized the business in 2004, he brought with him not just money, but an idea: to scrap B2B and bring music directly to the consumer through personalized Internet-based radio.

Pandora was conceived, but it wasn’t born overnight. It took almost a year to develop software for the new business. The company had to refocus again when it became clear it hadn’t hired enough people with expertise in advertising-supported businesses. And when Apple launched the iPhone App Store in 2008, the company “literally dropped everything” it was doing to build an app.

It paid off: Pandora is now the second most popular iPhone app. It has more than 150 million registered users in the U.S., 55 million of whom listen each month. In 2011, the company saw its first quarterly profit.

But a new savage beast, Apple, is said to be moving onto Pandora’s turf by creating its own streaming radio service, according to The Wall Street Journal. Those rumors sent the company’s stock price tumbling, but it’s unlikely that Pandora will go the way of the record store anytime soon. Its successful streaming radio model represents only 6% of the national radio market, says Kennedy. Which means that Pandora still has room to grow.

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About the author

Simone Baribeau is a freelance writer based in Miami, Florida. She has written for Bloomberg News, the Financial Times and the business sections of the Washington Post and the Christian Science Monitor